State Bank of Hyderabad reported a net loss of Rs776.64 crore for the quarter ended 30 September, due to higher provisions against bad loans. The bank reported a net profit of Rs375.31 crore in the same quarter a year earlier.

Provisions and contingencies surged 755% to Rs2,074.94 crore in the July-September quarter from Rs242.70 crore a year earlier. The loss during the second quarter was restricted due to a tax write-back of Rs197.12 crore against tax expenses of Rs189.87 crore a year ago.

This is one of the biggest losses reported by an associate bank of the State Bank of India (SBI). In the April-June period, State Bank of Travancore had reported a loss of Rs743 crore due to deteriorating asset quality concerns.

The drop in profitability of associate banks might be a result of the impending merger with State Bank of India, which has been approved by all of them. In August, the respective boards of SBI, State Bank of Bikaner & Jaipur, State Bank of Mysore, State Bank of Travancore, State Bank of Hyderabad and Bharatiya Mahila Bank had all approved the mega merger, which will create a large banking conglomerate in India. According to a Mint analysis, this will put SBI in the ranks of the top 50 lenders in the world.

The associate banks reported large losses as a direct result of the asset quality review (AQR) conducted by RBI in the October-December period last year, SBI management had stated earlier.

“Their AQR was very different from ours and this was required in order to align our books, so that when it (merger) happens, there are no surprises. All of the associate banks, going forward, will come back to form. This was the first quarter and maybe there will be another quarter (of pain) and then they will come back to form. They are all operationally healthy, so it shouldn’t be much of an issue,” SBI chairman Arundhati Bhattacharya had said while announcing the SBI’s first-quarter results on 12 August.

Since the beginning of this financial year, State Bank of Hyderabad’s net profit has declined consistently owing to rising provisions. As on 31 March, the bank’s net profit was Rs253.13 crore. This fell to Rs28.14 crore as on 30 June. Provisions at the end of the fourth quarter of the previous financial year were Rs538.41 crore, which rose to Rs893 crore in the April-June period.

Gross non-performing assets (NPAs) at the Hyderabad-headquartered bank jumped 196.2% to Rs15,306.98 crore at the end of the September quarter from Rs5,167.80 crore a year ago. As a percentage of total loans, gross NPAs were at 13.66% at the end of the September quarter as compared to 4.92% in the previous year and 8.39% as on 30 June. Net NPAs were at 8.64% in the September quarter compared to 2.39% a year earlier and 5.09% in the preceding quarter.

Net interest income, or the core income a bank earns by giving loans, fell 1.38% to Rs1,111.56 crore in the September quarter from Rs1,127.06 crore a year earlier. Other income increased 73.3% to Rs569.59 crore from Rs328.68 crore in the same period last year. Employee cost fell 24.3% from a year ago to Rs261.38 crore.